Nearly five years after purchasing a majority stake in the Polish meat packing conglomerate, Animex, Smithfield Foods remains a lightning rod for criticism from Polish pork producers and industry officials.
Smithfield Foods' initial strategic investment of $51.2 million (US$) in 1999 grew to over $250 million with additional investments, share purchases, inter-company loans and guarantees of Animex's bank loans. Smithfield has rightfully gained Animex's strong, diverse product line and market presence plus ready access to the European market.
Animex was established in 1951 as state-owned trading monopoly, controlling all meat trade in and out of Poland. “Animex was in the picture no matter what company was exporting,” explains Morten Jensen, Animex president.
“It was only after 1989, after Poland was liberated, that Animex decided to buy meat processing plants and get involved in production. That's the story no one knows,” Jensen continues. “Animex quickly became a big company that didn't have the know-how to run a meat business.”
Animex needed to find an investor that had enough capital to turn the company around. “Animex was losing a substantial amount of money and required a company, with cash in hand, a certain philosophy and a long-term strategy to really be interested in taking over this company,” says Jensen. “If this didn't happen, Animex wouldn't be here. We would have been bankrupt.”
Mid-Size in Europe
Smithfield kept the world-renowned Animex name — best known in the U.S. for Krakus brand ham. On the surface the company remained the same, but it now operates according to Smithfield's management policies and focus on profits. Even after the acquisition of Morlinary, sales are projected at $600 million annually, a mid-sized company by European standards.
Shortly after the ink dried, the Washington-based Animal Welfare Institute (AWI), a grassroots group dedicated to saving whales, sea turtles and elephants, added Polish pigs to its list of at-risk animals.
AWI was somewhat successful in thwarting Smithfield's efforts to implement its methods. The Ministry of Agriculture turned down Smithfield's application to build new farms. But, the company was able to circumvent the ban by buying existing facilities under the Prima farms name.
“Smithfield tried to take over the market by modernizing and building new farms,” says Wojciech Wojtyra, director of the Department of Food Safety and Veterinary Affairs at the Polish Ministry of Agriculture and Rural Development. “This was perceived as a threat to the environment and to Polish producers.”
As a result, a thorough audit of all big farms was conducted in the first quarter of 2003. “Inspections were carried out on three levels: veterinary, environmental protection and building code inspections. Most infractions were environmentally-related and have been corrected,” adds Wojtyra.
The ministry has since set up an ongoing inspection program. “In general, one can say the ministry is not in favor of very large farms because of their negative impact on the environment and their competitive advantage over local farmers. This is in accordance with the European Union (EU) balanced development concept.”
Jerzy Bloszyk, the vice president of the Wielkopolska region, Poland's largest hog-producing region, credits Smithfield for providing a much-needed spark for the pork industry. The region, roughly the size of Maryland, has more hogs (five million) than it has inhabitants (three million). At least 30% of Poland's hogs come from the Wielkopolska. Not surprisingly, it became Robert Kennedy's target for protests against “factory farming practices.”
Not Everyone's a Fan
The mayor of Siedlec, Adam Cukier doesn't hide his dislike of Smithfield. “They are trying to come in under assumed names. They look for farmers who have financial problems and offer to finance their operation but if they go bankrupt, they take over their farm,” he says.
Piotr Koszela, a farmer in a neighboring village, signed a producer's contract with Animex. The decision didn't sit well with local farmers. “They blocked access to his farm,” says Cukier. “The siege lasted two months until Koszela agreed to buy the feed and equipment he needed from local merchants and let a local veterinarian certify he was raising Polish-bred piglets.”
Koszela has 350 weaners — the maximum number of animals allowed under new environmental regulations. His new barn could house at least 2,100 pigs.
New environmental laws designed to curb hog concentration allow no more than 1.5 breeding animals per hectare (2.47 acres) of land. It also has strictly-enforced regulations on manure storage and disposal. Locals fear the battle to restrict large farms isn't over.
Stanislaw Szafinski, a veterinarian who tends to small piggeries in and around the village of Sarbia, some 50 miles from Poznan in western Poland, fears Smithfield's presence.
“They bought slaughterhouses and soon they will be dictating prices,” says Szafinski. “Smithfield supplies piglets, feed, antibiotics, growth promoters and veterinary services. Producers who work with Smithfield have no say in their operation, and losses of more than 3% are taken out of their wages.”
So far Szafinski has lost only one client to Smithfield. In jest, he says he uses psychotherapy when doing his rounds. “I want my clients to survive and stay positive — that means I'll stay in business.”
“You have to be realistic,” says Jensen. “Family farms are a tradition in Europe, but the large farm industries can deliver what people are asking for. They want traceability after having suffered BSE (bovine spongiform encephalopathy), foot-and-mouth (disease) and the Asian flu. There has to be control. Less than 10% of our pigs come from our own sow farms; the remaining 90% are supplied either from the 1,500 farmers we have under contract or the free market.
“There are 78 large pig farms, above 5,000 animals, in Poland. Twenty-one of these are owned by foreign capital. We supply some farmers with good cross-genetic piglets, feed, financing and so on,” Jensen continues. “We help farmers to build their business and make sure we have the right raw materials that consumers will want to eat. Animex's attitude is if the farmer doesn't make a profit and isn't able to supply good pigs, nobody wins.”
“Smithfield had a great impact on Poland's hog industry,” observes Professor Stanislaw Zieba. “They invested millions of dollars and have a huge working capital. The main concern with Smithfield was that they would want to process imported meat in their plants and leave Polish farmers without a place to sell their production. Now they depend on Polish raw materials and have a Polish management team. They are very active in exporting from Poland, which is very positive for the polish meat business.”
Poles Passionate About Pork
Poles love their processed meats and they certainly are not ready to settle for just a few varieties of sausages. Supermarket meat counters proudly display hundreds of varieties of sausages and cured pork products. The demand for the huge diversity of processed products with slight variations will likely slow industrialization.
The lean meat average of these products is around 50%, approximately 8% lower than older European Union (EU) countries. But since fat is an essential component of processed meat, the focus is understandably on yield. Fresh pork is available, but certainly not in the same gargantuan proportions.
“Pork is Poland's favorite meat,” says Wojciech Wojtyra, director of the Department of Food Safety and Veterinary Affairs at the Polish Ministry of Agriculture and Rural Development. “Poles consume between 90 and 94.6 lb./person each year and forecasts expect this figure to grow to 103.4 lb./person/year. The median EU consumption is 98.6 lb. Current Polish prices are just 85-90% of average EU prices, representing a 20% increase since May 1.”
“Eight-hundred-thousand of the country's two million farms are hog farms,” says Professor Stanislaw Zieba. “Twenty-four million hogs are slaughtered each year in the country's 3,000 slaughterhouses. Forty percent of all hogs are slaughtered in large facilities, while the rest are still slaughtered by butchers or small facilities which also process meats.”
— Suzanne Deutsch
Farmers Now the EU's Biggest Supporters
Pro-European Union (EU) groups vowed integration would solve post-Cold War economic problems, while opponents painted the EU as a monster, another communist totalitarian regime that would engulf Poland. The prospect divided Poles, too.
Approximately one-third of all EU farmers live in Poland. And, most contentious issues of the EU accession were linked to agricultural policies.
“Farmers feared they would lose out in the accession,” says Wojciech Wojtyra, director of the Department of Food Safety and Veterinary Affairs at the Polish Ministry of Agriculture and Rural Development. “Now, as common market rules are beginning to apply, and we have access to structural funds and direct payments, farmers have become the biggest supporters of the EU.”
“The free market and the freedom of economic activity caused a revolution in post-communist Poland,” says Professor Stanislaw Zieba, secretary of the Polish Meat Association. “Joining the European Union, however, is more of an evolution, a natural, economic and social process, which will allow farms to expand and production to grow.”
“Poland's market potential is huge,” adds Zieba. “The country has 18 million hogs and produces 2.5 million tonnes (1 metric ton equals 1.1 tons) of meat per year. We are well-positioned, the problem is with our structure.”
“Poland has two million farms, including some under 1 hectare (2.47 acres) which are not viable,” says Miroslaw Drygas, vice president of the Agency for Restructuring and Modernization of Agriculture (ARIMR). “There is also a big surplus workforce. There are approximately 2.5 million unemployed workers in the ag sector. Our main focus has been to create new jobs for people living in rural areas.”
The Special Accession Program for Agriculture and Rural Development (SAPARD) was launched in 2002 to help the 10 new countries who joined the EU in 2004 — Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia — to adapt their agricultural sectors and rural areas and implement the CAP (Common Agricultural Policy) legislation.
Applications trickled in at first. Farmers were suspicious and believed the funds were just another empty promise. “Polish people compared SAPARD to a Yeti, a creature similar to Bigfoot that is rumored to live in mountainous regions of Nepal, Tibet and Siberia. Everybody talks about them but no one has ever seen them,” chuckles Drygas. “There has been a big change in mentality now that people realize they can get real money from this program; 390 million Euros (US $508 million) were spent to modernize farms, processing plants, to buy equipment and farming implements to date, and the remaining 65% of SAPARD's 1.135 billion Euro program will reach well into 2006.”
In addition, nearly 102 million Euros ($133 million) in support payments started to flow to farmers in December 2004. Retirement incentives are being offered to farmers aged 55 and up, until 2006. The initial phase of the program will be able to support 60,000 to 70,000 farmers until they reach age 65, after which they will automatically be covered by Poland's national retirement program. Farmers who own more than 1 hectare of land are admissible and monthly payments range from $325 to $800, depending on how many hectares of land, up to 23 (56.8 acres), they are willing to sell. The goal is to restructure Polish agriculture and increase the national average size of Polish farms to at least 8 hectares (19.768 acres) of land.
As the borders opened, Poles have had to deal with yet another phenomenon. Massive numbers of feeder pigs are imported for finishing, taking advantage of Poland's feed prices, lowest in the EU, and significant slaughter returns. These imports have also introduced diseases such as adenomatosis, Mycoplasmal pneumonia, porcine reproductive and respiratory syndrome (PRRS) and atrophic rhinitis, explains Stanislaw Szafinski, DVM, of Sarbia, Poland. The cost of vaccination and medication can reach $5/head. Production costs are estimated at $0.55/lb.
— Suzanne Deutsch